1982 (7) TMI 150 - AT - Income Tax

Issues Involved:
1. Whether the interest-free loan granted to the assessee by Pure Drinks (New Delhi) (P.) Ltd. constitutes a perquisite under Section 17(2) of the Income-tax Act, 1961.
2. Applicability of Section 2(24)(iv) of the Income-tax Act, 1961.
3. Admissibility of additional grounds of appeal by the revenue.

Issue-wise Detailed Analysis:

1. Interest-Free Loan as a Perquisite under Section 17(2):
The primary issue revolves around whether the interest-free loan provided by Pure Drinks (New Delhi) (P.) Ltd. to the assessee, who is the Managing Director of the company, constitutes a perquisite under Section 17(2)(iii) of the Income-tax Act, 1961. The Income Tax Officer (ITO) initially proposed that the interest on the loan should be treated as a perquisite. The assessee contended that there was no law prohibiting interest-free loans to an employee-director and that the company had sufficient internal resources to provide such loans. The ITO, however, did not accept these arguments and included Rs. 1,19,158 as a perquisite in the assessee's income.

The Commissioner (Appeals) deleted the addition, relying on the judgments of the Madras High Court in CIT v. A.R. Adaikappa Chettiar and CIT v. G. Venkataraman, arguing that the provisions of Section 17(2)(iii) were not applicable since there was no contractual obligation for the company to provide interest-free loans to the assessee.

Upon appeal, it was argued by the revenue that the interest-free loan was a valuable benefit taxable as a perquisite under Section 17(2)(iii)(a). The Tribunal agreed with this view, citing judgments in CIT v. C. Kulandaivelu Konar and Addl. CIT v. Late A.K. Lakshmi, which held that interest-free loans provided to directors could be considered a perquisite under Section 17(2)(iii)(a). The Tribunal concluded that the benefit of interest-free loans given to the assessee is certainly a perquisite which falls under Section 17(2)(iii)(a), reversing the order of the Commissioner (Appeals).

2. Applicability of Section 2(24)(iv):
The revenue sought to alternatively argue that the amount should be taxable under Section 2(24)(iv) of the Income-tax Act, 1961. The assessee objected to this additional ground, arguing that the provisions of Section 2(24)(iv) could not be invoked as it was not within the postulate of Section 253(2). The Tribunal noted that the Commissioner (Appeals) had referred to Section 2(24)(iv) and held that the benefit of an interest-free loan is a perquisite under Section 17(2)(iii), which is included in the definition of income under Section 2(24)(iii).

The Tribunal concluded that after holding the perquisite in the shape of an interest-free loan from the company is taxable under Section 17(2), it cannot be said that the same amount would be taxable under Section 2(24)(iv) as well. The provisions of Section 2(24)(iv) are not applicable in this case.

3. Admissibility of Additional Grounds of Appeal:
The revenue sought permission to raise an additional ground of appeal, arguing that the amount in question should be taxable under Section 2(24)(iv) if not under Section 17(2)(iii). The Tribunal admitted the additional ground, noting that it was a purely legal ground and referenced the Supreme Court judgment in Hukumchand Mills Ltd. v. CIT and the Delhi High Court judgment in CIT v. Nar Hari Dalmia. The Tribunal, however, ultimately held that the provisions of Section 2(24)(iv) were not applicable to this case.

Conclusion:
The Tribunal reversed the order of the Commissioner (Appeals) and held that the sum of Rs. 1,19,158 is taxable as the income of the assessee under Section 17(2)(iii) read with Section 2(24)(iii). The appeal by the revenue was allowed.

← Previous Next →